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all right. not yahoo being okay, it's going to be vmware being really bad. and don't forget, vm ware is part of emc. so emc's going to be bad which is going to begin the revaluation of tech that all the bears have been worried about, and i think it actually starts tomorrow. i promise to try to find it for you here on "mad money." i'm jim cramer and i will see you tomorrow. good evening, everyone, i'm larry kudlow, this is the "kudlow report." how about this, folks? bipartisanship is still alive in the senate. a group of eight proposed immigration reform that will document 11 million illegals, it'll open the door to more bra brainiacs and provide border security all at the same time. i rather like it. let's build on it. can it pass the house? or will president obama step all over it in his speech tomorrow? now, get ready, folks, a

pro-growth budget cutting across the board sequester spending cut is coming in nine days. don't listen to the big government spenders. we need budget cuts to grow the economy, shrink government and create confidence that we are not greece. and, oh, heck, my friend steve kroft lobbed a bunch of softballs at president obama and hillary clinton in his "60 minutes" interview last night. and you know what, folks, we still do not know what happened on that tragic, awful night in benghazi when four people were killed. the administration spun two separate stories, we still don't know the narrative. all that, the "kudlow report" starts right now. first up tonight, it could prove to be the most significant immigration reform in years.

bipartisan group of four democratic and four republican senators unveiling their blueprint this afternoon for border security, guest worker cards, more foreign brainiacs and employer verification, maybe even a path to citizenship. cnbc's own eamon javers joins us now with the details. good evening, eamon. >> well, we've almost gotten out of practice at watching bipartisan groups of senators hold press conferences here in washington. that's not something we're used to seeing. in recent months, anyway. but the senators laid out why they think is so important and what the time line is for this bill to pass. maybe as early as this summer. take a listen. >> it's our hope that these principles can be turned into legislation by march and have a mark-up by chairman leahy's committee with the goal of passage out of the senate by late spring or summer. >> i am clearly new to this issue in terms of the senate. i'm not new to it in terms of my life. i live surrounded by immigrants,

my neighbors are immigrants, my family's immigrants, married into a family of immigrants. i see immigration every single day, the good of immigration, how important it is to our future. >> so the senators laid out what they call four pillars for a deal on immigration including a tough but fair path to citizenship. they say that's contingent upon beefing up security, reforming the immigration system to attract the best and brightest. and they'd award a green card to those with ph.d.s or masters degrees in key areas. also like to create an effective employment verification system and hold employers who violate it accountable. and they say they would provide the businesses the ability to hire workers when americans are unavailable or unwilling to fill those jobs. larry, the president's going to talk about his vision for immigration reform tomorrow in las vegas and, of course, the house of representatives has yet to weigh in on this, as well. we're seeing some mixed reaction here from conservatives. we're seeing some conservatives saying they're endorsing a lot of what they're saying here and

others saying they think is just amnesty on immigration and they think it's not a good idea. so, larry, where this goes is unclear. but a clear bipartisan and aggressive start here in the senate, larry. >> many thanks to eamon javers. as always. so who better to ask about this bipartisan immigration reform plan than one of the eight authors, that being arizona republican senator jeff flake. welcome back to the "kudlow report" as always. let me ask you something, do you think the issue of amnesty is going to clog the arteries of this reform inside the gop? or did the last election with its disappointments change things? >> well, i hope it was enough to change things. first, i think that this is good enough on policy grounds, putting politics aside to get it done. but if politics enters in, certainly republicans ought to look at november and realize that we've got to do better to broaden our base. >> if president obama in his speech tomorrow -- i have no

idea what he's going to say. but if he tries to take credit for it, tries to lord over it, does that help or hurt your coalition? >> it hurts. it hurts, it certainly would poison the well, i think, with a lot of republicans. the truth is over the past four years, the president hasn't done much on this topic, in fact, you know, he talked about comprehensive reform, but he would never get beyond the unions who didn't want a temporary worker plan. so if the president is supportive, that's one thing that's good, but i think that having the senate lead on this is even better, far better. >> why now? bsds besides the election. we're worried about tax reform. jobs and unemployment. this is catapulted to the front of the line. why now do you think? >> well, big items like this. and this is a big one.

need to be done early in a session. even with an issue like this that favors republicans, people get skittish so, i think, if you're going to move something this big, you've got to start early. >> can i -- can i barely call this? as i really want to because i think you're in the right direction. can i say that if done properly and orderly way, this is pro-growth, this is pro-growth, those immigrants come here to work and they'll help us. could it be sold as a pro-growth measure? >> you bet, you bet it can. just on the regular immigration reform that people think about. that's pro-growth, but what you mentioned, few people realize is part of this. on the high-tech side, we have american companies that are having a whale of a time finding enough americans to fill positions in the so-called stem fields. and this would deal with that issue and it would allow individuals who are educated in

our universities receiving masters and ph.d.s to be able to stay here. and that's a good thing. too many research facilities are being set up by microsoft in canada or elsewhere rather than doing it here simply because they can't find workers. >> i call it brainiacs, the resolution, and i think it's very important. let me ask you about this, in terms of the house, and probably in terms of the senate too, what about the security? what kind of border security. we've made a lot of investments, what more will be in this bill? >> well, for the first time you have real triggers here. some people concerned about granting citizenship. and let me tell you, the path to citizenship is a long and arduous one. it's not amnesty. amnesty, i think the best definition is cutting in line people who are able to access a path to citizenship won't be able to cut in line. but another step that will need to be taken, there's going to be a commission in this bill

comprised of governors and attorneys general and border state community members who have to sign off the certain border security measures have been effective before anyone is granted an adjustment of status. so that's a real hammer and real leverage that we haven't had before. >> how fast can that be done? how fast can that be done, senator? with the border security piece, you know, hold up the documentation and all that, the guest workers or can it be done fast? >> no, as far as registration and other elements of the bill, we'll move ahead simultaneously. but in order for anybody to adjust their status and get on a path towards citizenship, then those border security measures will have to be deemed effective. that, like i said, is a real hammer. that's the first time that's been part of the legislation, any legislation and that's a good thing. >> all right. we're going to leave it there. thanks, senator jeff lank who is part of this bipartisan coalition. it's almost a miracle to see

one. now, question is, does this immigration plan have a ghost of a chance at passing the house much less the senate? or is president obama going to stomp all over it tomorrow? we're joined by our political expert panel tonight, mark hanna, national review editor robert costa, and phil musser of the republican governors association. robert costa, you know the highlights of this bill, you heard jeff, does it have any chance to pass the house? >> larry, i just got over here from capitol hill, sat down with marco rubio, and he told me and other conservatives cheering for this bill to not be too exuberant because this is just the principle we're outlining today. the president could mess this up, the house of representatives has to mull this over. this is the first step of many that need to happen. >> why would the president mess this up? i mean obama seems to have made this a priority. he was out last summer with an executive order to let the kids

of illegals stay and go to school. why would he screw it up? >> well, i think he's largely not led on this issue for his entire first term, larry, i think it's instructive that the democrats today chose to partner up with senate republicans as opposed to waiting to join on the obama bill. frankly, i'm glad to see that the senate is leading on this. people like rubio deserve a lot of credit. if republicans put their fingers in their ears here and become the hell no caucus, it's going to be detrimental to the party. and i think there are probably some people along the same lines in the house thinking about this for longer than we realize. and there might be a more accelerated timetable there for consideration. >> mark, it sort of blows my mind when i look at the roster here. we have chuck schumer of new york, we have dick durbin of illinois, robert menendez of new jersey. and on the other side, we have

serious conservatives like jeff lake and marco rubio. left/right coalition on immigration, mark. how does that work? >> i think it speaks to the ideological diversity of our country and, actually, the evolution of the senate now. and, you know, you see senate republicans that used to treat compromise like a dirty word and now they're coming out and putting forward a proposal with their democratic colleagues that to a large degree mirrors the key principles that the president has identified. i do agree this is a golden opportunity for senators like marco rubio and with the other guests that mentioned that, but i do disagree that the president hasn't shown leadership here. he has been talking about comprehensive immigration reform as a key priority of the first, you know, as the beginning of the second term. so i think that what the senate democrats and republicans have done is gotten out in front and trying to make -- take ownership of this issue. they see it's going to happen. the president has give it an air

of inevitability. and i'm encouraged by the signs here. >> one thing you have to watch is what senator flake just said. the key part of this bill that's going to determine whether republicans come onboard is this commission of southwestern legislators and leaders who are going to determine whether this process is going to move forward. this commission is what rubio's talking about and flake's talking about. this is all about enforcement. republicans in the next few weeks will be asking tough questions about enforcement, how the border's going to be secured. that's going to determine whether this moves forward. >> phil musser, i just -- i like what robert said. we've been down this road before. >> growth. >> border security and amnesty have always been two stumbling blocks. look, i don't agree with the conservatives, my fellow conservatives, i don't even agree with my own magazine "the national review" on this. i've always been more liberal. i like to see some progress. i do like the balance in this bill. but my point is border security

and amnesty, phil musser have always been stumbling blocks to what i think is a pro-growth measure. but very few of my conservative colleagues agree. >> well, they should start listening to you because cloaking this language in the language of economic growth is a really smart idea. the h1b issue is a no-brainer to use your brainiac term that could lead to significant enhancement in growth for our own domestic industries here. with respect to border enforcement, we're getting much better at that as it exists and with systems like e-verify being used in place for many, many years now, technology is, i think, quickening the path by which we could accelerate this discussion. so it's just really important at the outset for republicans not to put their fingers in their ears and say, hell no on this thing because -- >> take their heads out of their sand. it's not just the political issue, it's an economic growth issue. >> that's a growth issue. >> that's the way it should be viewed. >> absolutely. >> it's the brainiacs and it's the under group that wants to

come in and help us in the agricultural fields and help us in the hotels and help us in the retail stores, but we need them, we need them. >> larry -- >> we need this thing. that's why it's important. it's not just the politics, although the gop should get wise on that. but there's an economic growth platform in this. >> yes, and, larry, this is mark, i think it's not just the pro-growth economic platform but also restoring integrity to our economy. there's a fundamental lack of integrity when you have 11 million men, women, and children sort of in the shadows that are paying taxes some of them, some of them aren't. some of them are, you know, you know, taking advantage of health care services in our country. >> there's not going to be any -- through this process, by the way, there's not going to be any welfare, that's written in here. >> right. but there is a path to citizenship. >> i'm going to come back to you, i'm going to bring you back every time. the unions are going to oppose this, mark, they always do. >> they -- >> you can blame it on republicans as much as you want,

but the unions hate this stuff because they're trying to protect these outdated jobs. >> they're getting more and more realistic, and i think you see a lot with the hispanic leadership or the latinos leading some of these unions, they understand that the nature of labor in this country is fundamentally changing. >> i do think business. i think you get more orderly card system. business will like this. it'll make it easier to verify so they won't have to be closed down and fined. i've got to get out of here. thanks very much. folks, are you ready for those big across the board sequester spending cuts? i am. i think it's great stuff, i think paul ryan said it's going to happen in 31 days, and i think it is pro-growth. but before we get there, what a pity, truly. solid "60 minutes" reporter steve kroft completely whiffed with his interview last night. and still, we do not know what happened in benghazi on that tragic night when four americans

were killed. here's how the president actually laughed off one question he did ask about that night. >> i remember bob gates, you know, first thing he said to me, i think maybe first week or two and he obviously been through seven presidents or something and he says, mr. president, one thing i can guarantee you is that at this moment somewhere somehow somebody in the federal government is screwing up. >> there's nothing funny about this. i'm sorry. there is nothing funny about that night in benghazi. and i regret that my friend steve did not ask a tough follow-up question. anyway, don't forget free market capitalism is the best path to prosperity. you know, we can fit in immigration reform in to free market capitalism and help our country and help mexico and help latin america. i'm kudlow, we'll be right back.

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welcome back, everybody. why is it that a very good reporter like steve croft couldn't ask tough questions of president obama and hillary clinton to find out the real narrative about that tragic night in benghazi, libya, when the ambassador and three other

americans were killed? why can't we get this good journalistic coverage? here now is dan gainor. dan, welcome back. look, i've known steve croft for a while and i know he's a good journalist. but he didn't ask follow-up questions, he let hillary and obama get away with it. and we still do not know what happened that night in benghazi. >> it was an embarrassing exercise in promotional journalism. i did a tally and there were 15 questions and 11 of them were complete and utter softballs. and i wrote a piece for fox today and said if cbs had a team, they should sign in. and the tougher questions, two of them were very quick about hillary's health and he really didn't press her on that. and then two nominal questions where he let obama really get away, you know, with just awful claims, including that the things had gone well in egypt. we've got morsi there coming

out -- we found out he's an-- i was like he doesn't read the international page before he asked his questions. >> yeah, i think it's very odd. again, i actually have been interviewed by steve croft, and i think he's pretty good. these two narratives, dan, here's the thing. one narrative is because of this video that no one watched, there was a spontaneous uprising in our consulate. that was the obama white house narrative. in fact, two weeks later, he was still saying it to the united nations. okay. that was his narrative. on the other hand, the cia, and some people in the state department said immediately this was a planned terrorist attack and al qaeda is back. don't tell us al qaeda is dead the way mr. obama tried to do. to me, it's that simple. why couldn't he go, a, b, the right narrative and isn't it true that al qaeda's back and

your whole argument is wrong? >> well, there's two things. one, this was clearly just a promotional tour by obama. it was -- it's unclear whether they had seen the questions ahead of time or not. but there was one question -- >> you think they showed him the questions ahead of time. that's a significant charge. i've interviewed presidents on a number of occasions and i never would even think about showing them the questions. >> the reason why -- >> you think steve croft and "60 minutes" showed the questions? >> the reason i say that, at one point when obama's asked one of these tough questions, hillary's watching him with a smirk on her face waiting for obama to deliver that little story, the joke story about gates where somewhere sometime any time somebody's screwing something up. and she waits for him to deliver. she knew exactly what he was going to say. maybe he didn't float it, but it was clear that the ground rules had been established. this wasn't going to be a tough interview. >> and a bigger issue here. the bigger issue here is i'm not

usually a mainstream media basher, it's not my reason detra for this show. nobody wants to ask tough questions about this benghazi business where the ambassador and three americans got killed. and they need to. why did we stick with two stories? one with fiction, one turned out to be the truth and the fiction story about the spontaneous uprising continued. that's the part i don't get. that's the part i do not get. what are we afraid of? why don't we want to ventilate? the president said today in an interview in the new republic that his, you know, he could get a lot more done if the media, the conservative right-wing media to use his quote like rush limbaugh. he said if rush limbaugh would stop attacking him, he would get everything through. and yet he won't tell the truth on stuff either. what's up with that? rush limbaugh. what does rush limbaugh have to do with finding the truth about benghazi? >> well, do you remember, croft did this once before the

election. they hid the question about benghazi until the day before the election. so it's not surprising that they would seek him out again for another interview. but obama, obama's been at war with the conservative media since he ran for election the first time. he seems to want 100% agreement for the media. if you look at the new republic article, it's obvious he's disgusted there's a hint of criticism in the media. yes, he could get everything done he wants if everyone agreed 100% with him. >> unfortunately, i think "60 minutes" missed a very good opportunity to get the truth about that night benghazi. dan, thank you very much for helping us out. >> thank you. now, big budget axe hanging over washington, 31 days to go until the sequester cuts kick in. if it happens, is it a doomsday scenario? i'm about to tell you why i think it is going to help this country and help this economy. that is next up. ♪

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change engineering in dubai, aluminum production in south africa, and the aerospace industry in the u.s.? at t. rowe price, we understand the connections of a complex, global economy. it's just one reason over 75% of our mutual funds beat their 10-year lipper average. t. rowe price. invest with confidence. request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. well, budget cuts are coming at last. over the weekend house budget meister paul ryan, mitch mcconnell both said the across the board spending cuts sequester has gone through probably around march 1st, and i say good. across the board cuts may not be the best way, but at least we're going to get some smaller government and lower spending. now, most of these so-called cuts, by the way, just represent slower growth. they're not real cuts. a lot of these accounts have

been up 50% or more in the last 10 or 20 years. so don't weep too hard. lower spending as a share of the economy is like a tax cut to growth economy. get that, please, it keeps cash in private hands which is far more efficient than the government. government spending is an anti-growth tax hike. just like the failed stimulus package. think of it this way. think of this. deficit spending robs taxpayers to finance government unions and special crony capitalist interest groups. that's why milton friedman called spending the gdp the ultimate tax burden. if you get spending gdp from 25% to 20%, wow, you'll be cooking up some economic growth. now, these cuts so-called it's about $80 billion, i think, in the first year, over ten years it runs about $1.2 trillion in total. i think it'll bolster confidence in business, i think it'll help

markets, and i think it'll show people that the u.s. economy is not greece. now, everybody may not agree with me. and those that do disagree with me are, of course, wrong about this issue. but, yes, we will debate it. it's an important issue. but first up, here's what paul ryan says about why these cuts are important. >> we're not preaching austerity. we're preaching growth and opportunity. what we are saying is if you get our fiscal ship fixed, you preempt austerity. that's the -- here's what a debt crisis is. a debt crisis is what they have in europe which is austerity. ♪ alright, let's go. ♪ shimmy, shimmy chocolate. ♪ shimmy, shimmy chocolate. ♪ we, we chocolate cross over. ♪ yeah, we chocolate cross over. ♪ [ male announcer ] introducing fiber one

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welcome back to the "kudlow report." i'm larry kudlow. in this half hour, is the economy getting stronger in the new year? big capital goods investment number out today, surprised everybody. and then, better growth actually changed fed policy at its meeting this week. and then in iran, did they blow up a nuclear facility? it's all being officially denied in tehran. the israelis believe it did happen. we'll take a closer look at what we know and what we don't know.

but first up, finally a budget cut. i call it a tax cut, and it is really pro-growth. take a listen to paul ryan yesterday on "meet the press." >> we think these sequesters will happen because the democrats have opposed our efforts to replace those cuts with others and they've offered no alternatives. >> right. don't believe those big government spenders, they are dead wrong. i say bring on the cuts. they'll wind up being pro-growth. let's talk. we bring on dean baker, senate for economic and policy research, and president of american commitment and author of "democracy denied." dean baker, the gig is up. the cuts are coming, and i say i unlike the stimulus package, these budget cuts will work to help the economy. >> well, i'll take issue with that, but first, larry, i want to rub this in a little bit. you talked about the capital goods orders. looked like the fiscal cliff didn't have anyone too upset.

we had good retail sales numbers. i guess they weren't worried like you were about the fiscal cliff. >> well, no, because the republicans saved us all by not only putting the votes in to stop that tax cut, they got a higher threshold. the thing wasn't near as bad as anybody thought. that's why -- >> this is december. in december -- >> i'm going to hoist you on your own petard. >> this was in december, they didn't know that, larry. >> they knew that. they had great foresight. >> okay. but let's get to the cuts here. >> all right. >> i'm still a little lost here. we have a collapse of the economy, collapse of the housing bubble. that leads to plunging consumption, plunging residential construction, that's what gave us this deficit, the government responded to it as it always does. now you're telling me that's going to boost the economy. i was just reading, you know, barnes and nobles, cutting back stores, like 200 stores over the next decade. are they going to not cut back their stores because we're cutting transportation spending and education? i don't understand how this works, larry.

what's the mechanism here? >> i don't think "a" leads to "b," but i want phil to set you straight. >> i think they're cutting back their stores because of something called the internet, i don't think it's because of their expectations about government spending. the reality is that every dollar that the government spends has to first come out of the private economy, in this case because we're in a large deficit position, it comes out there borrowing. i think it would be much better spent in the private sector. more over, if we can't even get these $85 billion in rep maining sequester cuts, it was supposed to be $109 million, but they kicked the can down the road. if we can't get it in a $3.5 trillion budget, i don't think there's reasonable expectation that anything serious is going to be done about the deficit. and if you take seriously the long-term fiscal challenges, then the outlook becomes much more negative if we can't even get these measly sequester cuts. >> dean baker, i think paul ryan really sold it smartly yesterday. this is pro-growth and opportunity, because as phil just said, these deficit spending forays which take money

out of the private economy, which would have much better investment and give it to the government with all its crony capitalist interest groups, we need to leave money in the economy. that's why the government needs to shrink. and as milton friedman taught us years ago, as the government's share of the economy shrinks, the growth of the economy rises. >> well, larry, i've read my milton friedman and the story he'd be telling we'd be crowding on private investment through higher interest rates. we have ten-year treasuries at 2%. is that high? are there people not undertaking investment because the interest rates are too high? that's a hard story to tell. the point is, we have a down economy, that flat economy. we're not pulling anything away from the private sector. i was making the point about barnes and noble, and the point is that business -- i've never seen a business that says i'm going to go out and invest because the government's cutting spending on education. >> i think it gives confidence. i don't think -- dean baker is a terribly smart guy, but doesn't

understand how business people think. business people want lower spending and lower deficits and loafer taxes. isn't that true? phil, the confidence factor alone, we're not greece. that's going to help us. >> yeah, look, we've still got a tremendous amount of capital on the sidelines. we've essentially got a capital strike, business profits have been very high, but they're not being reinvested. and that's because of all of the uncertainty about this enormous federal government that we've got and whether we're going to get it under control or it's going to continue to have an ever increasing footprint that's going to crowd out the private economy. you've got long-term expectations that are playing into this. and i really think, larry, if they cancel even this small cut, even this $85 billion they say we can't possibly live with that, nobody will expect them to ever pass anything that reduces the size of government as a percent of the economy and as you pointed out correctly, that's the real cost of government for the private economy. >> that's it. that's the deal. dean baker, i just -- if you shrink, let's say you go from 25% to 20%, government spending as a share of gdp. i'm here to tell you the economy

will accelerate. countries that spend more -- >> the economy disagrees with you. >> countries -- no, you're -- >> your big spending packets never work, dean. the big stimulus package didn't work. >> no, they actually did work, larry. >> did work. >> this is the worst recovery in history since 1947. >> we're -- as much as you don't like president obama and you think high government spending is crowded out, the data don't show that, larry, we're at the long-term average and that's pretty good considering how many businesses have huge amounts of excess capacity due to this downturn. the numbers aren't with you, larry. >> i think they are. i think if you look at long-term budgets, we're going back to 24%, 25%, but here's my point. all that stimulus spending. all it did was take money out of the private sector and have huge deficits and create new debt. it didn't grow the economy. 2% growth, that's all we've had. this is the worst in modern times since 1947. >> if you go back to 2010.

>> the most amazing thing, larry -- >> it was 2% growth. take a look at the calendar year averages, 2010, 2011 and 2012. my point is this, dean, if your way of stimulus spending was going to work, it would have already worked. now let's try something different. that's all i'm saying. >> trying it in the uk, larry, and they're getting a triple dip recession. >> all they did was raise taxes, that's the exact model we don't want to -- >> -- share of gdp. >> i've got to leave it there. i'm not sure i want to use the uk as a model. anyway, dean baker, thank you. the new year economy looks like it could be getting better maybe because it expects some spending cuts. question is, will the fed change its stripes at its policy announcement on wednesday because the economy might be better? that's next up on kudlow. (announcer) at scottrade, our clients trade and invest

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you name it...i've hooked it. but there's one... one that's always eluded me. thought i had it in the blizzard of '93. ha! never even came close. sometimes, i actually think it's mocking me. [ engine revs ] what?! quattro!!!!! ♪ well, this week's economi l calendar. a stronger than expected report. tomorrow begins a two-day fed meeting, and on friday, we're going to get the big january jobs report and the ism index. so, should we expect the fed

heads to ever tap the brakes on qe or raise rates? should we expect them to do that? the point is, the economy's stronger, is the fed going to move? the former president of the dallas fed and a distinguished fellow at the national center for policy analysis. joseph lovoriet, you know him, well. is the new year going to be stronger than people might have thought a month ago? >> oh, for sure, larry. there's no question, the corporate sector looks better, housing looks better, consumption, looked healthy in december, vehicle sales probably okay. so, yes, i think relative to expectations were, the economy's better. >> that changed the fed's view? my friend? >> the fed will never change its views so dramatically from one meeting to the next. so nothing new will happen tomorrow. but it may effect what they do on down the road this year.

>> what if the jobs number comes out stronger on friday? that's a big number. they're targeting unemployment, right, 6.5% unemployment, 2.5% inflation, what if you get a bigger than expected -- i don't know this, i have no foresight, i'm no good at forecasting these monthly job numbers. i do know that jobless claims are falling a lot. so let's say you got 250,000, let's say the unemployment starts dropping faster, will that move the fed? >> well, it'll move up the time in which they'll reach the 6.5% and it will encourage them, but it won't cause them to change policy right away. >> in my lifetime. >> it'll be in your lifetime. >> in my lifetime. >> you take good care of yourself. >> joe lavorgna is a spending cut going to hurt the economy or not? >> spending cut, no, i don't think it'll help the economy, but i don't think it's going to hurt that much for a couple reasons, larry. one, if the job market improves this year as i think it will, there'll be a big income offset. the other factor is if we

actually look at state and local job loss, it's very tiny now. spending in the third quarter in the state and local sector went up. federal spending is no longer shrinking, the $85 billion isn't a whole lot. >> economy's what? $16 trillion? >> in nominal terms. if the private economy looks better and friday's data should show private domestic demand up about 3%, we could withstand that spending cut. >> 3% economic growth? >> the numbers will look weak. but if you take away -- if you look at core demand, gdp less inventories, trade, and government, we think we'll be over 3% in the fourth quarter, which is good all things considered. >> so let me go to you on this. you're supposed to be a supply side conservative. you're supposed to be. $16 trillion gdp of which we have federal spending close to $4 trillion. if we reduce the growth of that spending by 85 billion, it isn't

a cut in the level, it's just the growth. i think businessmen and women would like to see that, it would show we're not greece, that congress is finally doing something. i think it would help. >> if you go from here to there, it will help. there could be some problem in the transition. i tendbe keynesian. >> i'm getting a pit at the bottom of my stomach. you, bob, you should be saying how great these spending cuts are. >> i agree, they're great. but i think if you start cutting spending and raising taxes all at once, there's going to be a transition period which it'll impart some weakness. >> there are some top tax rates coming and that's not good. and obama tax rates coming and that's not good. but i just think the spending thing, you know, milton friedman taught us that's a tax cut. smaller government is effectively a tax cut. >> you measure the burden of government by spending, not by taxing. >> all right. do you think the fed -- this is

the big question. people are worried about bonds. ten-year treasury bonds, right, have gone from about 140 last summer to about 2% today. upward move. so the fed's not really holding down bond prices -- bond rates even though they're buying so many. let me ask you, is the bond play a sucker play right now? if you think there's stronger growth coming and you see this stock market rally which has great legs, corrections or not, great legs, is it time to get out of bonds? >> yes, some investors, larry, have to be in bonds, they're benchmarked, certain liquidity and credit restraints. they have to be in treasuries. as an individual investor, you'd want to stay away from bonds. and if you were a speculative investor, you'd want a short bonds. there's no value in the treasury market. with nominal gdp even at 4% let alone the possibility we could accelerate to five. they don't belong at 2%, really somewhere over 4%. they won't get to 4% until the fed actually starts -- >> they don't want to be about

where the total economy is. >> roughly speaking. there is a relationship between nominal growth and rates. >> i want to know if you agree with that. and i don't want to get too in the weeds, but the total economy, real growth plus inflation equals nominal gdp. okay. we said that, this is cnbc. >> two plus two equals four. >> thank you very much. that's not a big number. in the inflationary days, when i came in the business in the 1970s, we looked at nominal gdp at 8%, 10%, 12%, of 6%, 10% was inflation. here's my question, is the fed really as loose as people think they are? maybe they're not. >> they're not. >> right. >> they really are not. >> maybe they should do what they're doing. >> over the past three years, the money supply has only grown about 7.5% to 8%. >> the turnover? >> the turnover of money. so you subject the velocity of the money growth and you get

your 4% nominal -- >> which is not a big number. not an inflationist number. >> one could make the case that the fed has been a little tight. >> i think you're right. i think they'll be a little bit better growth, not tons better. little bit better. >> take what we can get. >> thanks. thanks for the update. now, here's a very big question tonight, was there a major explosion in a key iranian nuclear weapons facility. and if so, who did it? we're going to try to get to the bottom of that story next up.

reports say a key iranian nuclear site was rocked by a massive underground explosion. question, was this a deliberate attempt to sabotage their nuclear development? the explosion reportedly took place at the nuclear facility about 80 miles south of tehran early last week. iran state news agency denies it, but why would anyone believe them? let's talk to syndicated radio talk show host john batchelor. was there an explosion? >> high probability. an explosion on monday the 25th, this is confirmed with multiple sources now reporting over the weekend. sources associated with german intelligence, with british intelligence, with israeli intelligence. high probability, larry. and the sun coming up tomorrow doesn't have as high probability. >> all right. we believe it happened. now, who, where, when, why, and how? is this an inside job or what?

>> i'm told right now it was an explosion deep inside the facility that there are 190 to 200 people trapped or dead. as of yesterday, there was indication there are survivors. however, the rescue efforts haven't started yet because of fear of radiation. who did this? who fears radiation, radioactivity in an enrichment program nuclear programs from iran? there are two obvious choices, one is israel, one is the united states. >> you believe that the u.s. and/or israel may have been responsible for this? >> i think every piece of logic i have points to the fact that israel is the chief suspect right now, chiefly because last tuesday the day after the event i'm told important national security meetings in tehran, one involved the supreme leader, the head of the irgc and the head of quds force. and i'm told the supreme leader approved of retaliation against

israel probably out of lebanon, the valley near israel is being evacuated in preparation of an action. tehran believes it was israel, i'll stay with that, larry. >> a year ago or less than a year ago, we had a power breakdown at this very same nuclear plant. do you think that was israel? >> that was mid-august 2012, yes, i do. that was on the surface. a month later, the iranians themselves admitted to that attempt to sabotage. it is the heart of the iranian suspect nuclear weapons program. it is the bargaining chip that iran brings to the table when it bargains directly with the obama administration. it is their guarantee of having a nuclear weapon while being prepared to sign on to a grand bargain with the united states. the fact that fordow is now damaged and perhaps seriously damaged, the indications right now are going to have a lot more details. there are a lot of people down

there, there are a lot of families who are worried right now. that will change significantly the calculus of the obama administration with regard to iran in the years ahead. >> how does that change the calculus? you think because it will weaken the iranian program? was this israeli operation as you put it that effective? >> very effective right now. the information, larry, again, we're going with what we have. very effective. chiefly because iran cannot now complain that israel attacked its secret nuclear weapons program, one that it isn't supposed to have. also, we know that the obama administration is in active conversation with the supreme leader right now for a grand bargain. significant detail here. the attack took place, the day before the israeli election. the day before benjamin netanyahu was returned to make -- to form a government. he is now forming a government. this is huge news in israel. all of the television stations will be going with it tomorrow, the newspapers are going with it now. >> you say -- you say the united

states government is negotiating a grand bargain with iran? that is nuts. have they learned nothing in the team obama? >> september 1938 is my watch word for what's going on right now. we're looking at making a deal with the supreme leader who is a predator and leads a predator state with a nuclear weapons. ask moscow right now where it's missing technicians are at fordow. ask ukraine right now where the missing technicians are. i don't have those answers, we'll get them in the coming days if there's a rescue effort. there's fear of radiation, larry. this is a huge story if it's a nuclear accident. >> i get that. and it's going to be important to a lot of innocent civilians, i get that, but unfortunately, war is war. i mean, john, i think blowing up fordow and any of these other nuclear plants would be a lot more effective than negotiating with iran, which strikes me as

unbelievably naive and counterproductive. >> january 21st, 2013, that's the date of the explosion we're told so far. that could be a significant event in world history, larry. if this put an end to iran's nuclear weapons program. >> that's terrific stuff. i've got just a second, john, just a second. israel hitting syria, yes or no? israel hitting syria over chemical weapons? >> if they use wmd, yes. >> it's on the table. great stuff as always, tremendous information. that's it for tonight's show, folks, thank you for watching. iran, maybe they're in more trouble than they know. ♪ alright, let's go. ♪ shimmy, shimmy chocolate. ♪ shimmy, shimmy chocolate. ♪ we, we chocolate cross over.

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